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U.S. 10-year Treasury yield rises to ~4.67%
BofA says lower-income workers are leading jobs, wage growth
Just ahead of the nonfarm payrolls report, Liz Everett Krisberg, head of the Bank of America Institute, and senior economist David Tinsley released a report pointing to some positive signals in the U.S. labor market based on customer trends.
Investors and strategists have talked for some time about a K-shaped economy, which is when circumstances are improving for wealthier people while deteriorating for people in lower-income brackets. But BofA's research suggests "strong signs that the labor market has moved beyond the 'K-shaped' narrative."
Based on Bank of America deposit data, they wrote that in July, lower-income households saw 3% year-over-year job growth on a rolling three-month basis. This compares with 1% growth among higher-income households. And in the same timeframe, they noted that middle-income households saw jobs decline.
Then they point to an "even more striking" shift in after-tax wage growth from the same timeframe, with lower-income households recording the strongest year-over-year after-tax wage growth at 5.2% compared with 4.2% for higher-income households. And they say that this was the first time that wage growth in lower-income households surpassed that in higher-income households since December 2024.
And with all three groups seeing stronger wage growth than in 2025, they say that, for now, this "points to a labor market that is 'leveling up' rather than down."
So what do these trends mean for the broader economy?
Tinsley noted in a telephone interview with Reuters that lower-income wages have been "quite weak" for over a year and that with gasoline prices and inflation rising, "that has squeezed low-income spending."
So, if the current wage growth story continues, this could signal "that some of the worst of that squeeze is behind us for lower-income households," the economist said.
"The recovery in jobs growth for lower-income households, alongside an acceleration in their pay growth, is good news for the economy and good news for U.S. growth, particularly because we're not really seeing a weakening for higher-income households," Tinsley told Reuters.
He noted, however, that the middle-income consumer bears some watching: "In our data, jobs growth for those households looks weak, but it's probably too early to be overly concerned."
And regarding what it all means for inflation trends, Tinsley said he was reassured by the latest U.S. data on productivity. According to the Labor Department, second-quarter nonfarm productivity rose 1.4% versus consensus expectations for 0.6% and 0.8% for the first quarter.
"If wage growth picked up and productivity didn't, that would be potentially upside news for inflation. But in the data that came out today, U.S. productivity growth was quite solid," he said, adding that he doesn't think "firming in wage growth necessarily implies that inflation will end up higher as a result."
According to Tinsley, the three groups roughly represent the top third, middle third and lower third of income levels among its customers. But he noted that while the middle-income group represents roughly a third of spending, the lower-income group accounts for around 10% to 15% of spending.
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